MAYORS WATER SUMMIT

Pension Funds as a Possible Source of

Capital for Public Infrastructure

December 8, 2010

Guest Speakers: Craig Beevers & Thad Wilson

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DISCLAIMER

The services outlined in this presentation are provided by M3 Capital Partners LLC in the United States, M3 Capital Partners Limited in the United Kingdom and M3 Capital Partners (HK) Limited in Hong Kong.

This presentation is made on a confidential basis to selected sophisticated institutional investors. It must not be copied or disclosed to anyone except to personnel and professional advisers of the recipient on a confidential need to know basis. It is for information purposes only and is not an offer or invitation to subscribe for or purchase securities or to enter into any agreement for investment services nor a solicitation of an offer to subscribe for or purchase securities or enter into any such agreement. No advice or recommendation is contained in it and it does not take into account the investment objectives, financial situation and particular needs of any potential investor or issuer.

All investments are subject to significant risks of loss of income and capital. Past performance of particular investments should not be seen as an indication of future performance, and there is no certainty or guarantee that results comparable to those achieved in the past can be achieved in the future.

In the United Kingdom this presentation is intended only for investment professionals and high net worth companies, partnerships, associations or trusts falling within Articles 19 and 49 of the FSMA (Financial Promotion) Order 2005. Firms authorised under the Financial Services and Markets Act (“FSMA”) may also provide this presentation to persons they have classified as Professional Clients under the Financial Services Authority rules. Transmission to any person in the UK other than the categories stated above is unauthorised and may contravene FSMA. No person falling outside those categories should treat this presentation as constituting a promotion to him or rely or act on it for any purposes whatever.

This presentation is in Hong Kong only intended for professional investors. The term "professional investor" is as defined in the Securities and Futures Ordinance and its subsidiary legislation.

M3 Capital Partners LLC is a member of FINRA and SIPC.

M3 Capital Partners Limited is authorized and regulated by the Financial Services Authority.

M3 Capital Partners (HK) Limited is licensed with the Securities and Futures Commission.

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M3 CAPITAL PARTNERS

An Integrated, Global Real Asset Private Equity Investment and Advisory Firm

1 Services provided in the United States by M3 Capital Partners LLC, in the United Kingdom by M3 Capital Partners Limited, and in Hong Kong by M3 Capital Partners (HK) Limited.

Focus on Real AssetPrivate Equity

Global Presence and Expertise

Management-Owned with Long-Term Stability

Global platform with regional offices in Chicago, New York, London and Hong Kong1

The majority of M3 transactions involve cross-border flows of capital

M3 Principals have average real asset experience of 23 years and average M3 tenure of 15 years

Stability of senior management and a focus on long-term strategic relationships

Since inception in 1991, M3 has focused on real asset private equity investment and financial advisory services, executing 200+ transactions with a total capitalization over $80 billion

M3 currently manages two private equity funds aggregating $2.9 billion of equity through Evergreen Investment Advisors, a wholly owned subsidiary

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INFRASTRUCTURE OVERVIEW

Why is Private Capital Attracted to Infrastructure Assets?

Due to recent market turmoil and the perceived threat of inflation, private capital is attracted to tangible infrastructure assets offering:

Low volatility

Predictable cash-flow

Attractive real returns

Low correlation with other asset classes

Attractive features of drinking water and wastewater infrastructure investments:

Capital intensive

Varied sizes ($10 $100+ million)

Very long investment horizon

Stable, secure cash-flows

Monopolistic characteristics

Massive need for investment

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PRIVATE CAPITAL’S APPEAL

Why Should Municipalities be Attracted to Private Capital?

Ownership / Control If correctly structured, public entity retains control over pricing and regulation Municipalities can continue to oversee operating and safety standards Failure to comply to standards results in termination of agreement

Payment Municipalities can receive direct upfront payment or avoid capital drain Potential to reinvest proceeds in infrastructure or other public works

Risk Transfer Construction, operation and maintenance, financial and regulatory risks transferred to private sector

Social Benefits Limits need for public entity leverage Allows for redeployment of stretched municipal human resources Brings forward time at which projects can be undertaken Large driver of employment locally and nationally1

Additional Benefits Private expertise and operational efficiencies may result in long-term user savings

Allows for potential transfers of new technologies and global best practices Diversifies funding sources

1 Studies cited by Jack Wells, US DOT Chief Economist, have found that each $1 billion in infrastructure investment could generate 34,800 jobs.

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PRIVATE INVESTMENT VEHICLES

Variety of Direct & Indirect Sources of Private Capital

Infrastructure Assets

Public Pension Funds

Corporate Pension Funds

Sovereign Wealth Funds

Insurance Companies

Private Equity Funds Unlisted Funds Listed Funds Fund of Funds

Listed Corporates

Direct Investment Secondary Investment

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THE DIRECT APPROACH

Direct Investment by Public Pension Funds

Capital Characteristics Pension plans are characterized by very long-term liabilities (i.e. retiree benefits) and thus are natural owners of long life-cycle assets

Pension funds desire better alignment of interests among stakeholders

Capital Availability Pension plans have increasing in-flows resulting in more flexibility to reinvest capital and fund future capital expenditures

Investment Horizon Very long-term investor – strong alignment of interests with focus on whole-life project costs

Motivated to achieve more cost-effective design and construction Allows for setting clear performance standards aligned with financial incentives Permits long-term budgeting

Use of Leverage Not motivated to leverage asset to meet promote hurdles or “alpha” targets

Return Expectations Typically more focused on current yield rather than capital appreciation Lower total fees

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SPECTRUM OF POTENTIAL STRUCTURES

Not a “One Size Fits All” Approach

Private Ownership

DBOF / Concession

Joint VentureDBOPublic

Ownership

Potential Pension FundInvestment Structures

Strengths Control over design,

build and operations process

Very long-term cash-flow stream

Challenges Structuring of

financial and operational risks

Political acceptance

Rate setting mechanism

Example Publicly traded

utilities

Strengths Coordination of

design, build and operations process

Long-term, stable cash-flow stream

Challenges Structuring of

financial and operational risks

Getting the contract terms “right” up front

Example PERC Water’s Santa

Paula, CA Water Recycling Facility

Strengths Long-term ownership Alignment of interest Ability to optimize

leverage

Challenges Minority ownership

for investor

Untested structure

Rate setting mechanism

Example Potentially structure

similar to Indianapolis transfer agreement

Investor Perspectives:

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CONTACT INFORMATION

M3 Capital Partners www.m3cp.com150 S. Wacker Drive, 31st FloorChicago, IL 60606

Craig Beevers Direct: 312.499.8500E-mail: cbeevers@m3cp.com

Thad Wilson Direct: 312.499.8530E-mail: twilson@m3cp.com